If the Federal Reserve increases the rate at which it increases the money supply,then unemployment is lower
A)in the long run and the short run.
B)in the long run but not the short run.
C)in the short run but not the long run.
D)in neither the short run nor the long run.

Question

Quizplus · Accepted Answer

When the Fed increases the rate of money supply, it leads to lower interest rates, which results in increased investment and consumption. This, in turn, increases aggregate demand, leading to expansion in output and employment in the short run. However, in the long run, this may lead to inflation, resulting in an increase in nominal wages and a decrease in real wages, leading to higher unemployment. Therefore, the statement is true only for the short run.

If the Federal Reserve Increases the Rate at Which It